Imaging Center Valuation: What is Your Facility Worth?

While recent imaging center deals indicate valuations all over the board, there are reasons why some centers command top dollar and others reflect fire-sale prices.

Easy answers to the question of imaging center valuation abound, but are they the right answers? Los Angeles-based RadNet’s market value of invested capital (MVIC), defined as the sum of the market value of debt and equity, represents 10 times the trailing 12 months’ earnings before interest, taxes, depreciation, and amortization (EBITDA). Should your facility also be worth a 10 times the trailing 12 months’ EBITDA?

Assuming that Wall Street continues to value a public company at a given figure after the acquisition, an acquisition at half of that figure results in an addition of the acquisition price times the target EBITDA in value for the public company. As long as public companies continue to operate the target businesses at similar levels of profitability and the arbitrage (the difference between the public company’s multiple and acquisition multiples) holds, the value proposition is strong. For your imaging center, though, this means that its value as a multiple of EBITDA is more than likely to be something significantly less than RadNet’s multiple.

Perhaps, then, the recent acquisition of MedQuest, Alpharetta, Ga, and its 95 imaging centers by Novant Health, Winston-Salem, NC, can be used as a guideline for the value of your facility. In August 2007, MedQuest announced that it would be acquired by Novant for more than $400 million. Novant’s assumption of MedQuest’s debt ($360 million) and additional cash ($45 million to $80 million) represent a multiple of approximately 12 times the trailing 12 months’ EBITDA.

Novant is a not-for-profit integrated delivery system with hospitals, physician practices, and imaging centers that provide services to residents in counties reaching from southern Virginia to northern South Carolina. While there certainly must be significant strategic value to Novant’s acquisition of MedQuest—given that a significant portion of MedQuest’s centers are located in the states of Virginia, North Carolina, and South Carolina (where Novant has a significant market share), where certificates of need (CONs) are relatively difficult to obtain—it seems to be only a remote possibility that the fact pattern in this transaction and these strategic considerations should be applied to your particular center.

The experience of VMG Health, Nashville, Tenn, in imaging-center transactions indicates that most smaller singleor multiple-facility transactions occur at a price range of three to five times the EBITDA. As such, VMG Health would generally view Novant’s purchase of MedQuest at 12 times the EBITDA as an outlier, rather than a relevant guideline transaction.

From this initial discussion, then, one presumes that the value of your imaging center as a multiple of EBITDA is likely to be something significantly less than the multiples of the publicly traded imaging companies, is probably something significantly less than the multiple paid by Novant for MedQuest, and may be in the range of three to five times the EBITDA.

This leaves us a fairly broad range of multiples that might be applied to your imaging center. Where does the value of your imaging center lie within this range? Based on recent experience, it is not unusual for the effective multiple resulting from a comprehensive valuation of an imaging center to be above or below this range.

Some of the factors to be analyzed in determining the value of an imaging center.

Valuation Approaches
A multiple of EBITDA is not the only approach, and may not even be the most relevant approach to be relied on in forming an opinion of value. Generally accepted valuation practice requires consideration of all relevant approaches to value. In performing a valuation analysis, three generally accepted methodologies are considered: the cost approach, the market approach, and the income approach.

The cost approach takes into consideration the cost of replicating a comparable group of assets or a business with the same level of utility.

The market approach estimates value by comparing the value of similar businesses traded in a free and open market with the value of the subject asset. This value can be estimated by adjusting the market value of the similar assets or businesses for qualitative and quantitative differences.

The income approach estimates value by analyzing historical financial information